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Roe v. Kervick

Decided: April 20, 1964.

ROBERT A. ROE, COMMISSIONER, ETC., ET AL., PLAINTIFFS-RESPONDENTS,
v.
JOHN A. KERVICK, STATE TREASURER OF THE STATE OF NEW JERSEY, DEFENDANT-APPELLANT



For affirmance -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For reversal -- None. The opinion of the court was delivered by Francis, J. Hall, J. (concurring). Justice Haneman joins in this concurring opinion. Hall and Haneman, JJ., concurring in result.

Francis

[42 NJ Page 197] This is a proceeding under N.J.S. 2A:16-50 et seq. seeking a declaratory judgment as to the constitutionality of L. 1962, c. 204, N.J.S.A. 13:1B-15.13 et seq., commonly called "The New Jersey State Area Redevelopment Assistance Act." The action was necessary because the defendant State Treasurer declined to lend money as authorized by the statute for the use of the New Jersey Area Redevelopment Authority. The declination was based primarily upon his doubt as to whether the various loans or advances of money contemplated by the legislation constituted a lending of the credit of the State, county or municipality, or loans or appropriation of money of the State, county or municipality in aid of a private person, association or corporation in violation of Article VIII, Section II, paragraph 1, and Section III, paragraphs 2 and 3 of the State Constitution. The Superior Court, Law Division, declared the act constitutional.

This appeal followed and we certified it before argument in the Appellate Division.

I.

The Area Redevelopment Assistance Act created in the Department of Conservation and Economic Development the New Jersey Area Redevelopment Authority, "a public corporation and government instrumentality" of the State. Members of the managing board of the Authority are: (1) the Commissioner of Conservation and Economic Development, (2) Commissioner of Banking and Insurance, (3) Commissioner of Labor and Industry, (4) the State Treasurer, and (5) five public members appointed by the Governor with the advice and consent of the Senate. L. 1962, c. 204, § 3, N.J.S.A. 13:1B-15.15.

The purpose of the act was declared to be "to assist area redevelopment agencies to establish area redevelopment projects within the State, to assist in obtaining such Federal financial assistance as may be available and to provide such additional financial assistance as may be required, which assistance shall not exceed, in total, 10% of the cost of establishing an area redevelopment project which cost shall be divided equally between the authority and the municipality or county or other public or quasi -public agency which is qualified to provide such assistance." Id. § 4, N.J.S.A. 13:1B-15.16.

Among other things, the Authority is given powers, (1) to determine on application of an area redevelopment agency the financial assistance required by it to establish and maintain an area redevelopment project, and whether such agency has qualified for federal financial assistance; (2) to approve the agencies which meet the conditions specified in the act for financial assistance; (3) to enter into agreements with counties and municipalities to provide for financial assistance to such approved agencies; (4) upon proper application of such agencies to make loans to them from moneys held in the area

redevelopment fund, and to provide for repayment as required by the act; to purchase, upon application of such agencies, evidences of indebtedness, and to provide for repayment as required by the act; (5) to make all contracts and execute the necessary instruments to accomplish the statutory purposes; (6) to accept grants from, and to enter into contracts or other transactions with any federal agency; (7) to determine, upon proper application of area redevelopment agencies, whether the declared public purpose of the act will be accomplished by the establishment of an area redevelopment project in a redevelopment area; (8) to take title by foreclosure to any project where the acquisition is necessary to protect any loan previously made by the Authority, and to sell, transfer and convey any such project to a responsible buyer, or if a sale, transfer or conveyance cannot be accomplished promptly, then but only then, in order to minimize financial losses and to sustain employment, the Authority may lease the project to a responsible tenant; (9) under rules and regulations prescribed by the Authority, it may assign or sell at public or private sale or otherwise dispose of for cash or credit on terms and for consideration it deems reasonable, any evidence of indebtedness, contract, claim, personal property or security held by it in connection with loans made or evidences of indebtedness purchased or held under the act; (10) to deal freely by way of improvement, rental or sale with real or personal property acquired in connection with loans made or evidences of indebtedness purchased under the act. Id. § 5, N.J.S.A. 13:1B-15.17.

The terms "redevelopment area," area "redevelopment agency" and "area redevelopment project" or "project" are defined specifically. "Redevelopment area" is any area within the State which has been designated as such by the Secretary of Commerce of the United States pursuant to the provisions of Public Law 87-27 (1961), the Federal Area Redevelopment Act, 42 U.S.C.A. § 2501 et seq. "Area redevelopment agency" means

"* * * any person, partnership, firm, company or corporation deemed by the authority after proper investigation to be capable of assuming all obligations prescribed by the authority in the establishment of an area redevelopment project and in the operation of an industrial or commercial enterprise therein or thereon."

"Area redevelopment project" means

"* * * the acquisition and development of land within a redevelopment area, the construction of new buildings, the rehabilitation of abandoned or unoccupied buildings and the alteration, conversion or enlargement of existing buildings which undertaking comprises or is connected with or part of an industrial enterprise established or to be established by an area redevelopment agency and may also include, in cases of demonstrated need, machinery and equipment." Id. § 1(e), (h), (g), N.J.S.A. 13:1B-15.13(e), (h), (g).

When the Authority decides upon application of an area redevelopment agency that the establishment of a project will be to the economic well-being of the area in which it will be located, a contract may be made to furnish the agency with an amount not in excess of 10% of the cost thereof which sum "shall be provided 1/2 by a loan from the authority to the agency and 1/2 by a loan from a county or municipality in which the agency is located * * *." Id. § 6, N.J.S.A. 13:1B-15.18. The financial assistance shall be supplied on such terms and interest as the Authority determines and, unless otherwise decided, it shall be secured by a mortgage of the agency on the project. Except as permitted by the act, the mortgage must be a second mortgage and subordinate only to the mortgage securing the first lien obligation issued to secure the commitment of funds from independent and responsible sources and used in the financing of the project. The money furnished by the Authority to the area redevelopment agencies is to be withdrawn from the area redevelopment fund. Id. § 7, N.J.S.A. 13:1B-15.19. That fund is not derived from tax revenues but from a 30-year noninterest-bearing loan not exceeding $500,000 which the State Treasurer is authorized to make out of the escheat account established by N.J.S. 2A:37-41. Id. § 10, N.J.S.A. 13:1B-15.21 note. The fund is to be held by the State Treasurer for

purposes of the act, money to be paid therefrom on warrant or other order of the treasurer of the Authority or other person authorized to do so by the Authority with the approval of the Commissioner of Conservation and Economic Development. Id. § 9, N.J.S.A. 13:1B-15.21.

The first circumstance which must come into being before proceedings relating to a specific project can be initiated under the act is a designation by the United States Secretary of Commerce that the area where the project is to be located is a "redevelopment area." The Secretary is authorized to make such designation under certain standards and regulations established by the Federal Area Redevelopment act, supra, 42 U.S.C.A. § 2501, adopted May 1, 1961. The New Jersey act complements and integrates with the federal statute which seeks to establish a pattern of national and state cooperative action for dealing with local depressed area redevelopment. See Congressional declaration of purpose, 42 U.S.C.A. § 2501. Under section 2504, the Secretary is required to designate as redevelopment areas those areas within the United States wherein he determines there has existed "substantial and persistent unemployment" for an extended period of time. In making the determination he is directed to use standards generally comparable to those set forth in paragraphs (1) and (2) of the section. These paragraphs are as follows:

"(1) [W]here the Secretary of Labor finds that the rate of unemployment, excluding unemployment due primarily to temporary or seasonal factors, is currently 6 per centum or more and has averaged at least 6 per centum for the qualifying time periods specified in paragraph (2); and

(2) where the Secretary of Labor finds that the annual average rate of unemployment has been at least --

(A) 50 per centum above the national average for three of the preceding four calendar years, or

(B) 75 per centum above the national average for two of the preceding three calendar years, or

(C) 100 per centum above the national average for one of the preceding two calendar years."

The Secretary of Labor is directed by the same section to find the facts and provide the data to be used by the Secretary in designating the redevelopment areas.

Subsection (b) of section 2504 requires the Secretary of Commerce to designate as redevelopment areas also those areas which do not meet the requirements set forth above but which he "determines are among the highest in numbers and percentages of low-income families, and in which there exists a condition of substantial and persistent unemployment or underemployment." The Secretary must prescribe detailed standards upon which such designations shall be based, in the formulation of which he is to consider, among other relevant factors,

"* * * the number of low-income farm families in the various rural areas of the United States, the proportion that such low-income families are of the total farm families of each of such areas, the relationship of the income levels of the families in each such area to the general levels of income in the United States, the extent to which "rural development' projects have previously been located in any such area under programs administered by the Department of Agriculture, the current and prospective employment opportunities in each such area, the availability of manpower in each such area for supplemental employment, the extent of migration out of the area, and the proportion of the population of each such area which has been receiving public assistance from the Federal Government or from the State or States in which such area is located or from any municipality therein. * * * In making these determinations the Secretary shall be guided, but not conclusively governed, by pertinent studies made, and information and data collected or compiled, by (1) departments, agencies, and instrumentalities of the Federal Government, (2) State and local governments, (3) universities and land-grant colleges, and (4) private organizations."

An affidavit appearing in the record executed by the State Coordinator under the Federal Area Redevelopment Act says there are presently in New Jersey six counties which contain redevelopment areas within the federal act criteria set forth above. (The affidavit does not state that the Secretary of Commerce has made the designations. The unemployment

statistics set forth therein, however, clearly bring the municipalities mentioned within the class which under 42 U.S.C.A. § 2504, supra, requires such designation. Consequently, for purposes of this case, we shall assume that the designation has been made.) The areas are: Atlantic City in Atlantic County, Ocean City, Wildwood and Cape May in Cape May County, Bridgeton in Cumberland County, Long Branch in Monmouth County, Lakewood and Toms River in Ocean County, Paterson and Passaic in Passaic County.

When the Secretary of Commerce has denominated a locality in New Jersey a redevelopment area, an area redevelopment agency (which, as defined above, is a private person or entity) may apply to the Redevelopment Authority for the financial assistance authorized by the act in order to establish an industrial project in the area. From the standpoint of participation by a public agency, the financial assistance, if granted, would be a tripartite affair involving the federal government, the State Authority and a county or municipality, i.e., a maximum of 65% of the cost of the project from the Secretary of Commerce, 5% from the Authority and 5% from the county or municipality where the project is to be located. 42 U.S.C.A. § 2505(a), (b)(9).

Certain criteria must be met before the Authority can approve the application of an area redevelopment agency for financial assistance from the area redevelopment fund or from a county or municipality (implemented as they are or undoubtedly will be by Authority-prescribed regulations):

(1) The Department of Conservation and Economic Development has established and is operating an over-all program for the economic development of redevelopment areas. This regulation is the counterpart of 42 U.S.C.A. § 2505(b)(10) which forbids federal financial assistance unless "there shall be submitted to and approved by the Secretary an overall program for the economic development of the area * * *."

(2) The agency has qualified for federal assistance. L. 1962, c. 204, § 5(a)(2), N.J.S.A. 13:1B-15.17(a)(2).

(3) The agency is capable of assuming all obligations prescribed by the Authority in the establishment of the project, and in the operation of the proposed industrial or commercial enterprise. Id. § 1(h), N.J.S.A. 13:1B-15.13(h).

(4) The project is feasible and practicable. Id. § 1(i), N.J.S.A. 13:1B-15.13(i).

(5) The purpose of the act will be accomplished by the establishment of the project. Id. § 5(k), N.J.S.A. 13:1B-15.17(k).

(6) The amount of financial assistance required must be proved. Id. § 5(a)(1), N.J.S.A. 13:1B-15.17(a)(1).

(7) No loan can be made by the Authority or the county or municipality unless the agency contracts to provide specified employment opportunities to such number of persons in the area as shall be agreed upon, and agrees to carry on the particular activities for which the project is being established on a regular and continuous basis "unless economic conditions will not otherwise permit for such period of time as shall be agreed upon." Id. § 8, N.J.S.A. 13:1B-15.20.

As indicated above, after investigation, including public or private hearing when deemed advisable, if the Authority concludes that the enumerated criteria have been satisfied and that the project will be to the economic advantage of the area, it may contract to supply to the agency an amount not in excess of 10% of the cost of establishing the project on agreed terms of repayment and interest, the amount to be furnished one-half by the Authority and one-half by the county or municipality. Upon execution of the necessary contracts by the federal government, the Authority, county or municipality, and the area redevelopment agency, the Authority may issue a warrant against the redevelopment fund for its agreed share of the financial assistance.

The record discloses that certain project applications of area redevelopment agencies have been approved by the Federal Area Redevelopment Administrator and are awaiting approval by the State Authority. In anticipation of approval of some

such applications and the resulting commitment to supply the 5% financial assistance, the plaintiffs Richard A. Roe, Commissioner of the State Department of Conservation and Economic Development, and the New Jersey Redevelopment Authority requested the State Treasurer to lend sufficient money to the area redevelopment fund established by section 10 of the Area Redevelopment Assistance Act to enable the Authority to make the loans to be approved by it in the administration of the act. As has been noted above, however, the State Treasurer, having conscientious doubts about the constitutionality of the act, and particularly of its loan provisions, declined to make any such deposits. The Commissioner and the Authority then instituted this declaratory judgment action to settle the issue.

II.

The State Treasurer's principal challenge to the constitutionality of the Area Redevelopment Assistance Act has two aspects. First, with respect to the State action, he questions (a) the validity of the loan up to $500,000 from the escheat fund to the Area Redevelopment Fund which is authorized by section 10 to enable the Authority to carry out the purposes of the act, and (b) the validity of loans from the Authority to area redevelopment agencies to assist in the financing of redevelopment projects. Such loans, he suggests, constitute the direct or indirect lending of the State's credit or the appropriation of money for private purposes contrary to Article VIII, Section II, paragraph 1 and Section III, paragraphs 2 and 3 of the Constitution. Second, he questions the legal propriety of loans from counties or municipalities to area redevelopment agencies to assist in financing such projects. These loans, he suggests, amount to a loaning of money or credit or an appropriation of money by counties or municipalities for private use in violation of Article VIII, Section III, paragraphs 2 and 3 of the Constitution.

The portions of Article VIII of the Constitution referred to are as follows:

SECTION II

Par. 1. "The credit of the State shall not be directly or indirectly loaned in any case."

SECTION III

Par. 2. "No county, city, borough, town, township or village shall hereafter give any money or property, or loan its money or credit, to or in aid of any individual, association or corporation, or become security for, or be directly or indirectly the owner of, any stock or bonds of any association or corporation."

Par. 3. "No donation of land or appropriation of money shall be made by the State or any county or municipal corporation to or for the use of any society, association or corporation whatever."

The organization of the Area Redevelopment Assistance Act indicates that the Legislature contemplated a meshing of three interdependent links at three levels of government: federal, State and county or municipal financial assistance to a redevelopment project. If the scheme breaks down at the state or local level because of conflict with the Constitution, the legislative purpose cannot be accomplished. For that reason we agree the State Treasurer has standing to challenge the validity of the plan for participation in the financing at both state and county or municipal levels.

Historically, the forces which motivated the constitutional prohibitions recited above, in this and most states of the Union, are clear. During the nineteenth century states and their political subdivisions frequently undertook to encourage the development of railroads by furnishing financial aid. Such assistance was in the form of direct loans or gifts of public money or property, or by bond issues, or subscription to stock of the companies. Many abuses followed in the wake of such practices to the serious detriment of the taxpayer. See Hoglund v. City of Summit, 28 N.J. 540, 548 (1959); Wilentz v. Hendrickson, 133 N.J. Eq. 447, 487 (Ch. 1943), affirmed 135 N.J. Eq. 244 (E. & A. 1944); Carr v. Merchantville, 102 N.J.L. 553, 557 (Sup. Ct. 1926); 2 Antieau, Municipal Corporation Law, § 15.04, pp. 358-368 (1963); Pinsky, "State Constitutional Limitations on Public Industrial Financing: An Historical and Economic Approach," 111 U. Pa. L. Rev. 265, 277-280 (1963); Note, "State Constitutional

Limitations on a Municipality's Power to Appropriate Funds or Extend Credit to Individuals and Associations," 108 U. Pa. L. Rev. 95, 97 (1959). As one court commented in an early case:

"[W]hen the State once enters upon the business of subsidies, we shall not fail to discover that the strong and powerful interests are those most likely to control legislation, and that the weaker will be taxed to enhance the profits of the stronger." People ex rel. Detroit & H.R.R. v. Township Board, 20 Mich. 452, 487 (Sup. Ct. 1870).

The strictures of Article VIII, which were adopted in 1875, were simply the retreat to a fundamental doctrine of government, i.e., that public money should be raised and used only for public purposes. The article brought the doctrine into the organic law and thus established as basic policy a prohibition against lending the credit of the State directly or indirectly, or loaning, giving or donating its money or property or that of its subdivisions to or for the use of an individual, association or corporation for private purposes.

But when is public money or credit being given or loaned for a private, as distinguished from a public, purpose? The concept of public purpose is a broad one. Generally speaking, it connotes an activity which serves as a benefit to the community as a whole, and which, at the same time is directly related to the functions of government. Moreover, it cannot be static in its implications. To be serviceable it must expand when necessary to encompass changing public needs of a modern dynamic society. Thus it is incapable of exact or perduring definition. In each instance where the test is to be applied the decision must be reached with reference to the object sought to be accomplished and to the degree and manner in which the object affects the public welfare. Hoglund v. City of Summit, supra (28 N.J., at p. 549); DeArmond v. Alaska State Development Corporation 376 P. ...


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